The ESCRT-I protein Tsg101 plays a critical role in viral budding and endocytic sorting. Although Tsg101 is known to recognize monoubiquitin (Ub1), here we show that it can also bind several diubiquitins (K48-Ub2, N-Ub2, and K63-Ub2), with a preference for K63-linked Ub2. The NMR structure of the Tsg101:K63-Ub2 complex showed that while the Ub1-binding site accommodates the distal domain of Ub2, the proximal domain alternatively binds two different sites, the vestigial active site and an N-terminal helix. Mutation of each site results in distinct phenotypes regarding the recruitment of Tsg101 partners. Mutation in the vestigial active site abrogates interaction between Tsg101 and the HIV-1 protein Gag but not Hrs, a cellular protein. Mutation at the N-terminal helix alters Gag but not Hrs-Tsg101 localization. Given the broad involvement of Tsg101 in diverse cellular functions, this discovery advances our understanding of how the ESCRT protein recognizes binding partners and sorts endocytic cargo.